Introductory statement to the press conference (with Q&A)

Mario Draghi, President of the ECB,Vítor Constâncio, Vice-President of the ECB,Frankfurt am Main, 10 January 2013

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. Let me wish you all a Happy New Year. We will now report on the outcome of today’s meeting of the Governing Council.

Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. HICP inflation rates have declined over recent months, as anticipated, and are expected to fall below 2% this year. Over the policy-relevant horizon, inflationary pressures should remain contained. The underlying pace of monetary expansion continues to be subdued. Inflation expectations for the euro area remain firmly anchored in line with our aim of maintaining inflation rates below, but close to, 2% over the medium term. The economic weakness in the euro area is expected to extend into 2013. In particular, necessary balance sheet adjustments in financial and non-financial sectors and persistent uncertainty will continue to weigh on economic activity. Later in 2013 economic activity should gradually recover. In particular, our accommodative monetary policy stance, together with significantly improved financial market confidence and reduced fragmentation, should work its way through to the economy, and global demand should strengthen. In order to sustain confidence, it is essential for governments to reduce further both fiscal and structural imbalances and to proceed with financial sector restructuring.

Let me now explain our assessment in greater detail, starting with the economic analysis. Following a contraction of 0.2%, quarter on quarter, in the second quarter of 2012, euro area real GDP declined by 0.1% in the third quarter. Available statistics and survey indicators continue to signal further weakness in activity, which is expected to extend into this year, reflecting the adverse impact on domestic expenditure of weak consumer and investor sentiment and subdued foreign demand. However, more recently several conjunctural indicators have broadly stabilised, albeit at low levels, and financial market confidence has improved significantly. Later in 2013 a gradual recovery should start, as our accommodative monetary policy stance, the significant improvement in financial market confidence and reduced fragmentation work their way through to private domestic expenditure, and a strengthening of foreign demand should support export growth.

The risks surrounding the economic outlook for the euro area remain on the downside. They are mainly related to slow implementation of structural reforms in the euro area, geopolitical issues and imbalances in major industrialised countries. These factors have the potential to dampen sentiment for longer than currently assumed and delay further the recovery of private investment, employment and consumption.

According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.2% in December 2012, unchanged from November and down from 2.5% in October and 2.6% in August and September. On the basis of current futures prices for oil, inflation rates are expected to decline further to below 2% this year. Over the policy-relevant horizon, in an environment of weak economic activity in the euro area and well-anchored long-term inflation expectations, underlying price pressures should remain contained.

Risks to the outlook for price developments are seen as broadly balanced over the medium term, with downside risks stemming from weaker economic activity and upside risks relating to higher administered prices and indirect taxes, as well as higher oil prices.

Turning to the monetary analysis, the underlying pace of monetary expansion continues to be subdued. The annual growth rate of M3 remained broadly unchanged at 3.8% in November 2012, after 3.9% in October. M3 growth continued to be driven by a preference for liquid assets, as M1 growth increased further to 6.7% in November, from 6.5% in October, reflecting inflows into overnight deposits from households and non-financial corporations. Following our non-standard monetary policy measures and action by other policy-makers, a broadly based strengthening in the deposit base of MFIs in a number of stressed countries was observed. This allowed several MFIs to reduce further their reliance on Eurosystem funding and helped to reduce segmentation in financial markets. M3 growth was also supported by an inflow of capital into the euro area, as reflected in the strong increase in the net external asset position of MFIs.

There has been little change in credit growth, which remained weak in November. The annual rate of decline in loans to the private sector (adjusted for loan sales and securitisation) remained at -0.5% in November. This development reflects further net redemptions in loans to non-financial corporations. Net redemptions, however, were less pronounced than in previous months, amounting to €4 billion in November, after €7 billion in October and €21 billion in September. The annual rate of decline in loans to non-financial corporations was -1.4% in November, after ‑1.5% in October. The annual growth in MFI lending to households also remained broadly unchanged at 0.7% in November. To a large extent, subdued loan dynamics reflect the current stage of the business cycle, heightened credit risk and the ongoing adjustment in the balance sheets of households and enterprises.

In order to ensure adequate transmission of monetary policy to the financing conditions in euro area countries, it is essential to continue strengthening the resilience of banks where needed. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of all funding channels. Decisive steps for establishing an integrated financial framework will help to accomplish this objective. The future single supervisory mechanism (SSM) is one of the main building blocks. It is a crucial move towards re-integrating the banking system.

To sum up, the economic analysis indicates that price developments should remain in line with price stability over the medium term. A cross-check with the signals from the monetary analysis confirms this picture.

Other economic policy areas will need to make further contributions to ensure a firm stabilisation of financial markets and an improvement in the outlook for growth. Further structural reforms should be rapidly implemented to make the euro area a more flexible, dynamic and competitive economy. In particular, product market reforms to increase competition and competitiveness are essential, accompanied by measures to improve the functioning of labour markets. Such reforms will boost the euro area’s growth potential and employment and improve the adjustment capacities of the euro area countries. They will also add further momentum to the progress being made with regard to unit labour costs and current account imbalances. As regards fiscal policies, the recent significant decline in sovereign bond yields should be bolstered by further progress in fiscal consolidation in line with the commitments under the Stability and Growth Pact.

We are now at your disposal for questions.

* * *

Question: My first question is about today’s rate decision. I was wondering whether it was unanimous, and did you discuss cutting rates?

And my other question concerns Ireland – Ireland had a successful bond auction this week. Does this now qualify Ireland for Outright Monetary Transactions (OMTs), or what does the country have to do to be considered for this programme?

Draghi: The decision was unanimous. And I can spend some time explaining why this is so. If you look at the overall landscape – taking a, I would say, medium-term perspective and looking at what has happened over the last six months – you would see a significant improvement in financial market conditions and a broad stabilisation of cyclical indicators. Let me go through a list, one by one, of things that are now better than they used to be. Bond yields and countries’ credit default swaps (CDSs) are much lower, significantly lower. Stock market prices have increased and volatility is at a historical low. Redemptions, as I have just said, are much lower than they were in September, down to one-fifth of the volume recorded in September. We are seeing strong capital inflows to the euro area. The deposits in periphery banks have gone up. Target2 balances have gone down. The size of the ECB’s balance sheet, which is often considered as a source of risk, is continuing to shrink! So, all in all, we have signs that fragmentation is being gradually repaired, but all this has not yet found its way through to the real economy. The real economy continues to be weak, as we had pointed out in our projections of last month. Even though we have also had improvements, which I forgot to mention, in the current account balances and in all confidence indices, the real economy continues to be suffering from what we had diagnosed in our projections a month ago. There was thus no reason really to change the medium-term outlook for price stability and that is the main explanation of why our discussion was unanimous, why our decision was taken unanimously.

As regards your second question on Ireland and whether it qualifies for OMTs or not, I have said repeatedly what the prerequisites for access to OMTs are. I don’t want to comment specifically on them – you know what they are.

Question: As you have just said, there are some signs that the capital flight from the weak countries in the euro area has stopped, and would you say that this is a turning point, and a turning point in the crisis? And if so, are you starting to think about an exit plan, at least to reduce the non-standard measures?

Draghi: No, we are not thinking about an exit now. But we see that the system, that the economy will exit when it is ready. We are seeing this – the balance sheet is shrinking, and Target-2 balances are going down, but we can still see signs of significant fragmentation in the euro area. So, in order to define a turning point, you need a lot of factors besides the stabilisation of financial markets. You also need to see some signs of recovery, which we have foreseen, but only later in this year, in the course of this year. You need also to see some generally greater strength in the economy and, basically, our medium-term outlook for price stability remains what it was before. There is thus no reason to think about an exit.

Question: Could it be a turning point in the debt crisis? I mean, you said it is probably not a turning point in the economic crisis.

Draghi: Well, you see, that is where government policies, national government policies, become crucial – the continuation of the structural reform process and the improvement in competitiveness. That is set out in what I said about structural adjustment in my introductory statement: regaining competitiveness, action on the product markets with the aim of restoring competition in the product markets, are all factors that would basically grant a long-term improvement, and not only an improvement in financial markets.

Question: I have two questions. Can I press you again on the discussion in the Governing Council? You said the decision was unanimous, but last month we had a significant amount of support for a rate cut and I find it quite hard to believe that this was not there this month. Was it there? And you have people like your former colleague, Mr Orphanides, who basically said that the current confidence swing is merely a lull in the crisis brought on by the OMT, and with unemployment being at a record high, the recession is actually worse than in 2009, so he would say that you should cut rates.

And my second question is that there have been some issues in the Eurosystem in the sense that the national central banks seem to apply different collateral rules as they see fit, which is a bit embarrassing for the ECB. Are you going to do anything about it to make sure that the same collateral rules are applied right across the board?

Draghi: I have already answered the first question. Since our last assessment there has been nothing that has made us change our medium-term assessment of price stability. And any signs we have seen since then are signs of financial market stabilisation, if not a return of confidence, and a broad stabilisation in conjunctural indicators. That explains why we now have unanimity. But there was no reason to change the decision taken last month.

On the collateral issue in your second question, you are evidently referring to the recent press reports. The specific incident occurred in the summer of 2012 and was corrected at the end of August 2012. I think some media reports failed to mention this important point. The difficulties have already been addressed with regard to this specific case. Second, the incident had no impact at all on monetary policy, contrary to what has been stated in some media. But having said that, I said last time and I repeat today that we take these incidents very, very seriously. We had already consulted the Audit Committee, chaired by Governor Liikanen, which has proposed several measures which the Governing Council adopted at our last meeting on 6 December. These measures include a series of reviews and audits which were detailed in our various press communiqués on this subject. But, in addition, at all times following the Audit Committee recommendations, we have decided to create a data quality compliance network and an ECB unit that are responsible for monitoring data quality, by performing regular checks and reports, and promoting improvements in national central banks’ processes, checking procedures and internal controls. We are doing everything we can to prevent these incidents and fix them when they happen, and we will continue to do so. It is not true that each national central bank applies its collateral rules as it sees fit. We saw last time that it was an issue of interpretation. This time there were objective technical difficulties which have been addressed by the Banque de France, as they stated in a press release.

Question: Were there calls for rate cuts today?

Draghi: I said it was unanimous.

Question: You said that the decision was unanimous, but what about in terms of the discussion? The markets want to know what the mood on the Governing Council is.

Draghi: If the decision was unanimous it implies that there was no request for a rate cut. One thing implies the other.

Question: First, you said rightly that the ample credit supply or the ample supply of money is not yet reaching the real economy. Have you got any indications as to how much of that is lack of credit demand and how much of that is actually the clogging-up of the pipeline? Because we have heard even from corporate chiefs in Germany who have access to the capital markets that the call to politicians is “stop pampering the banks” we need money to arrive where it is supposed to arrive. Is there something like clogging-up of the pipeline in terms of credit supply?

Second, are you more pleased by the fact that yields have come down to a more comfortable level or more disappointed by the fact that you have got a fantastic OMT programme that nobody seems to want yet?

Draghi: On the first point, we have experienced this on other occasions. Banks do not lend for three reasons: one is lack of funding, the second is lack of capital and the third is either risk aversion or credit risk. In the course of last year the first issue – the lack of funding – was addressed. The lack of capital also seems to have improved significantly. So we are now left with high risk aversion and credit risk – credit risk caused by the recession itself. The bottom line is that all the positive factors that I listed at the beginning, plus our accommodative policy stance and the continuing reform process and the improvement in repairing fragmentation, will find their way through the economy and we will see better credit conditions in the course of this year. I have already pointed out that net redemptions were significantly lower in November – only one-fifth of what they were in September. That is an example of improvement. The starting point was very low. It is going to take some time. At the same time, the demand is what it is, it is still a situation of very weak economic activity as we described today and in December.

On the second question, we are pleased not so much that the yields are going down, but about the fact that tail risks have been removed and this has led to an improvement in financial market conditions and the beginning of a stabilisation and return of confidence in the financial markets.

Question: The first question is again on the problem of credit not finding its way to the real economy. Do you feel there is anything further the ECB could do? You did two LTROs at the beginning of last year. Could you envisage at some point that you could do another one?

The other question is about monetary policy. There seems to be a broad rethinking among some of your colleagues around the world on monetary policy strategy. The Bank of England is rethinking inflation targeting; the Fed has indicated their long-term guidance on rates. Could you give us a flavour if there is any discussion on that at the ECB, notwithstanding that of course you are bound by your mandate of keeping price stability? Was there any consideration that you might do anything like that in the future or even any comments on what your colleagues around the world are doing?

Draghi: On the LTRO, we believe that funding conditions right now are satisfactory. I don’t think that’s where the problem is, contrary to what the issue was at the beginning of last year when there was a serious potential for serious distress and systemic risk materialising. The two LTROs have avoided a disorderly deleveraging, which could have had even worse consequences for credit flows and caused further disruption in economic activity.

On the second question, I don’t want to comment in detail, really, but let me give you the bottom line of this after some reflection. Each central bank has its own institutional set-up, has its own statutory objectives and its mandate. Within this institutional set-up, within the statutory objectives, each central bank tries to steer private sector expectations. As far as our mandate goes, namely maintaining price stability, I think we’ve shown how to do it. And, basically, markets understood.

Question: Mr Draghi, I have two questions. One is regarding your speech in London from last year, where you said the ECB will do enough or can do enough. Mr Mersch said at the end of last year that one can rescue the euro only if countries are going along and doing what they have to do. Is there a difference in the view how far the ECB can go within the ECB Board?

And the second question is about your relationship with the Bundesbank. The Bundesbank already in 1992 warned about the EMU and said it maybe comes too early. In 1998 Mr Tietmeyer said that probably there are coming too many countries in the EMU and that might cause problems. In 2010 Mr Weber said the SMP will not work and you had to replace it last year. Now you are discussing about banking union and the Bundesbank basically says we have to change the Treaties before we can do a proper eurozone banking union. You seem to say no. I don’t understand why you never listen, or why those who try to drive European integration never listen to those who seemed to be right in the past and have a good record of being right, and do always the opposite of that. Maybe you could say some words about that.

Draghi: I’m not sure how to read your question because, actually, you put all examples in which the Bundesbank has not been followed. The reality of all has been in a completely different direction, so I’m not sure what you want to say exactly.

But I will try to respond to the first question first. No, there isn’t any difference. In fact, OMTs foresee conditionality. Conditionally with an ESM and an IMF presence means that countries have to act; it means that OMTs do not start without programmes. And even so, it means they do require an independent assessment by the Governing Council. So, there isn’t any difference between what Mr Mersch and myself or anybody in the Board would say about that.

Second, on the point more generally I’m not going to comment on individual statements. My responsibility is to convey the decisions of the Governing Council, not comment on individual statements. Third, the principle of a single voice is essential and markets have understood it very well – at least it seems to me. And fourth, what matters is, in the end, the strength of the European System of Central Banks, where all central banks implement the decisions of the Governing Council.

Question: Despite this more positive mood, in the statement you do still explicitly say that the economic risks are to the downside. Does that suggest that, given the much more confident financial markets we have been seeing, this is the beginnings of the risk of a bit of exuberance, that people are saying or feeling that the crisis is over when we are very far from that?

Secondly, what are the biggest risks that you see economically? You seem to be hinting, in your statement, that the single biggest risk is political. If you were to give some concrete examples, what would they be?

Draghi: I do not yet see any risks of exuberance because, after all, we are now back in a normal situation, from a financial viewpoint, but we are not at all seeing an early or strong recovery. So, I do not think there is any ground for exuberance yet. Also regarding the financial markets and the credit markets, we are not yet observing any sign of this exuberance; we are observing rather a normalisation of certain conditions. However, there are, here and there, some signs which we are watching carefully, that might suggest that there is some exuberance in specific localised parts of the financial system. We are watching closely to ensure that this would not lead to excessive creation of debt or leverage, as happened before, but, so far, these are fairly limited and contained examples.

As regards the risks to economic activity, you are right, they stem essentially from a lack of action by the governments on the fiscal side; by this I mean that not only is continuing fiscal consolidation essential, but it also needs to be implemented in a balanced way, through a proper combination of government expenditure reduction, and taxation. The second point which, as many people have said, is becoming more and more important in reducing long-term imbalances in the euro area, is structural adjustment. That is essentially the only thing that matters with regard to imbalances in the euro area: structural adjustment, regaining competitiveness and creating a situation where you do not have a permanent creditor and lots of permanent debtors. That is where action is needed and will continue to be needed for the foreseeable future.

Question: Just to follow up on what the specific areas are that you were looking at in markets, where there might be the beginnings of signs of exuberance.

Draghi: We have seen, as you know very well because the Financial Times reported widely on it, the return of some over-valuations in certain sectors of the private equity deals of some leveraged buy-outs and so on; that was what I was referring to. As I have said, these are still relatively defined and contained situations, you do not see exuberance in other parts of the economy. The positive thing is that, looking at the last three, four or five months; the financing conditions have, all in all, become a little easier, because of everything I said at the beginning: decreasing yields, increased stock market valuations and so on.

Question: A few weeks back, I was at a Christmas gathering and I stepped outside onto a terrace and I was speaking with this man; we were talking and talking and, eventually, I asked him what he did. He said he was in waste management. He did not look like a garbage man to me; I was a bit confused but then the nickel fell, he was a banker, which made sense. His job was to go in and value basically garbage assets and he said this bank, a prestigious German bank, is valuing a lot of its garbage assets at fantasy values. He said this is prevalent throughout the banking system and, so, my question to you is: can you comment on this and what do you intend to do about it? Also, because so much waste management is going on at banks, is that why the Basel III liquidity requirements have been postponed?

Draghi: I do not share that very negative picture of the current situation of the banking system. I think that a lot of repairing has taken place since Lehman times – this does not mean that the repairing is finished. There is much more work to be done, but a lot has already been done, both in terms of deleveraging untenable positions and raising more capital; the figures give quite good evidence of this. The work is not finished, as your friend seemed to say, and should continue, and that is very much in the hands of national supervisors. Another positive development is that national supervisors have become much more active, alert and intrusive than they were before the financial crisis. Things have also improved a lot at the institutional and public sector levels. Also, the flow of new regulation – and I will come to the liquidity rules in a moment – has come through and been put into place after the financial crisis, which certainly helped from this point of view. The liquidity rules in themselves do not have a direct relationship with the weakness of the balance sheet; they deal more with the banks’ funding situation. We welcome the Basel agreement as far as the liquidity rules are concerned; we think it is quite important. By the way the rules are not being postponed; there was an agreement about their gradual phasing in, which is normal when you increase or fundamentally change them. It was the same thing for the capital rules – you need to allow time for the banks to adjust, and the same applies to policy makers, because some of their policies will have to take these changes into account.

Question: I want to go back to the labour markets. You talked about the decline in fragmentation in financial markets, but the fragmentation in the labour markets seems to be getting even more pronounced, especially in youth unemployment, which is almost 60% in Spain and 8% in Germany. Overall unemployment is over 25% in Spain and a little over 5% in Germany. At what point does this become an issue for monetary policy, and affects the transmission of monetary policy in the same way that the fragmentation of financial markets affects it? And why can’t the ECB maybe think about ways to lower this fragmentation if it gets to such an extreme level that it affects your ability to conduct monetary policy?

And my second question, going back to the issue of global central banking in 2013, it appears that more central banks may be either explicitly or implicitly looking at the exchange rate as a tool, when other policy tools are exhausted. If the ECB is just focusing on price stability, couldn’t there be collateral damage to the euro area if you are the only one out there talking about price stability, while other central banks are experimenting in these different ways to help their economies?

Draghi: As regards your first question there are several issues with and several angles from which you could look at unemployment, but just keep in mind that our mandate is not full employment, unlike the dual mandate of the Federal Reserve. Our mandate, and our statutory objective, is to maintain price stability. Having said that, unemployment and the level of economic activity are very important factors in our assessment of price stability, and we certainly want to look at the unemployment rate and analyse how much of it is structural and how much of it is cyclical. There are certainly some elements of structurally high unemployment in what we see today. You referred to one. What is the reason for such high youth unemployment? If all workers were treated the same, unemployment would be distributed uniformly across the working population. The fact that we observe such high figures for youth unemployment means that we often have dual labour markets in which there are the young with very little protection and the old, the others, with a lot of protection, so unemployment gets concentrated in the young part of the population. And we know that this is because the greater flexibility that has been introduced since the beginning of the year 2000 was basically concentrated on the young part of the population, so when the crisis came, they were the first ones to lose their jobs. The next question is why there is very little mobility in this unemployment. Why are the workers not moving from the areas where there is no demand to areas where the demand for labour is better? These are all structural factors. Another observation is that, when you look at output gaps, the significant levels of output gaps would justify lower levels of inflation than we actually have, which again seems to suggest that there are certain structural components in the unemployment rate. Monetary policy, even in general, cannot do much about that. And, finally, we believe that ensuring price stability actually gives you the long-term foundation for growth and job creation. But this does not mean that we do not take into account unemployment in economic activity, in our overall assessment of the situation and of prospects.

You had another question …

Question: ... are other central banks conducting policies that affect the exchange rate, and, if the ECB is not doing anything on that front, will you end up taking a hit by just focusing on price stability?

Draghi: I never comment on exchange rates, but the exchange rate is certainly a very important element as far as growth and price stability are concerned, and we certainly use it as one of the elements in our economic assessment. But it is not a policy target. That is to be kept in mind. Having said that, I can go back and read to you what the international consensus is in the G20 statement, and we stick by that. The G20 said: “ We reiterate our commitments to move more rapidly toward more market-determined exchange rates systems and exchange rate flexibility to reflect underlying fundamentals, avoid persistent exchange rate misalignments and refrain from competitive devaluation of currencies.” That is a solemn commitment that the G20 entered into . “We reiterate that access volatility of financial flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.”

Let me finally add that, so far, both the real and the effective exchange rate of the euro are at their long-term average.

Question: I have another question on the collateral issue. Given the fact that there was another mistake at a national central bank last summer, do you still feel comfortable with the measures which were adopted in December and is it not time to think about centralising the valuation of collateral at the ECB and taking this competence away from the national central banks to some extent?

Draghi: That is a good question. The way collateral is managed and handled was decided at the beginning of the ECB. I would say that right now we have to strengthen the governance of this process, and we are doing so. We have to implement all the decisions that have been taken. Then we will certainly reassess the situation after that, and we will see whether the steps we have taken are really satisfactory, because, as I said at the beginning, we are taking this very seriously.

Question: Mr Draghi, two questions if I can. First of all, just a very simple question: Would the ECB ever consider, or has it ever considered, anything along the lines of the Bank of England’s funding for lending scheme as a way of addressing the fragmentation issue?

Secondly, you mentioned the Basel rules. Was the decision on Sunday at all a signal that perhaps we could see other concessions to the banking industry on other aspects of the Basel rules, such as the net stable funding ratio?

Draghi: On the first question, the combination of LTROs with the possibility of using additional credit claims as collateral – which we had before the Bank of England actually launched the scheme – is very much the same kind of action. It is very similar. In accepting a broad set of collateral, the Bank of England moved towards what we already had in place. Because you have ample liquidity, it is medium term liquidity, and banks can use their lending as collateral for further funding. The pricing conditions were, and still are, very attractive. So, from this viewpoint there is not much difference between the objectives of the two schemes. Of course our scheme does not involve the UK Treasury or any treasury, while the UK scheme involves the Treasury. Given our institutional set up – as I said, each central bank has its own institutional set up and decides and takes actions within that set up – we think our scheme is simpler.

As to the other question, regarding the Basel rules and the latest decisions on liquidity I think the Governor of the Bank of England, who was also the chairman of the GHOS, the Group of Governors and Heads of Supervision, said everything that needed to be said at that time. We welcome these rules, we think they are important, we think the approach taken is, as he said, realistic and we also welcome their gradual phasing in, because in a variety of ways our monetary policies will have to take these changes into account as well.

Question: One question, which I don’t think has been answered yet. Is the worst over? Can we say that?

Secondly, did you shut the door to rate cuts because you did not discuss it or because you somehow think that you have some powder left?

And there are banks that want to give back the liquidity that you lent them almost one year ago. Have you any sign of how many banks and how much it could be?

Draghi: On the third question, no, we have estimates of course but the range of these estimates is so wide that I do not want discuss them now. We will know more at the end of this month when the banks start repaying their first LTROs. They can repay them weekly, and we will communicate the amounts and the number of counterparties. You will not find out from us which banks, because we do not communicate the names of the banks. On 27 February they will start repaying, if they so wish, their second LTROs. They can repay them on a weekly basis and everything will be communicated on a weekly basis as well.

I have answered the question on the rate cut; I do not think there is anything further to say, any other consideration to make. We had a discussion, and there was no reason to change the medium term price stability assessment made at our last monetary policy meeting. Any sign we had was a sign of broad stabilisation on the conjuncture and a certain return of confidence in the financial markets. But as I said, economic activity is still weak and will remain weak for at least the first part of this year.

This is also a good answer as to whether the worst is over. The present situation is characterized by high uncertainty and this uncertainty stems, as I said before, from geopolitical risks, from the price of oil, from commodity prices and from the policies of the governments. We have seen substantial, significant progress as regards the latter, but they have to continue, and as I just said, especially on the structural side at this point in time.

Question: Could Outright Monetary Transactions (OMTs) lose their magical effect in the markets if no country asks for them?

Second question: Jean-Claude Juncker has said that too much fiscal consolidation could have a negative effect on countries like Spain, because unemployment is so high. What can you say about that?

Draghi: On your first question, you do not have to ask me, ask the markets.

On the second, many comments of this type have been made about several countries in the euro area. My answer to this is that so much progress has already been made, accompanied by so many enormous sacrifices. So reverting to a situation which has been found to be untenable would not be right. We should not forget that this fiscal consolidation is unavoidable, and we certainly are aware that it has short-term contractionary effects. But now that so much has been done I do not think it is right to go back.

Question: Chancellor Angela Merkel has said in the past few months, on more than one occasion that this crisis will take at least five years to overcome. Do you agree with her, or are you more optimistic?

Draghi: Well, I am not really in a position to make long-term assessments at this point. When we look at price stability over the medium-term horizon, we see that inflation is in line with our policies, and our policies are in line with our objectives.

Question: Mr President, may I ask you again. You have explained to us the Governing Council’s assessment of where the crisis is at the moment. The ECB has actually bought time with their extraordinary measures designed to resolve the crisis in due time. Do you think that national governments really used the time efficiently?

And second, do you see it as a personal success that financial markets have become calmer, at least to a certain extent, in the light of the fact that there has been quite heavy criticism surrounding these decisions?

Draghi: On the first question, we have to acknowledge that significant progress has been made in all countries in the euro area. In all countries, whether you look at their fiscal situation, current account balance, competitiveness, unit labour costs or exports, all aspects of economic activity have been affected by reforms of different kinds, whether fiscal or structural. The point now is not to be complacent about what has taken place and relax, but rather to keep on, to persevere, because we can all see that we are starting to see the benefits. And the benefits of this do not only come from the OMTs, from the actions of the ECB. They come, first and foremost, from the substantial progress that has been made at national level. But also let’s not forget the significant progress that the year 2012 has brought in terms of governance at the level of the euro area. We made significant steps towards greater integration. The beneficial effects that we see today, and I went through some of them at the beginning of this press conference, are really the result of all of these factors combined. Also, let’s not forget about one thing. We speak a lot about contagion when things go poorly, but I believe that there is also contagion, positive contagion, when things go well. And I think this is in play now. There is positive contagion.

You had a second question? I think I have answered the second question as well or not?

Question: No not really. It is a more personal question. I would like to ask you again whether you see the fact that the markets are calmer as a personal success, despite severe criticism of the measures being taken.

Draghi: Well, let me be absolutely fair on this. I think the jury is still out. It is too early to claim success.